Shipping giants seek control of ‘Silk Road’

Shipping giants seek control of ‘Silk Road’

Chinese state-run shipping companies are investing billions of dollars in ports worldwide to ease the movement of Chinese goods, as the ocean-freight industry emerges from a slump and Beijing becomes a vocal promoter of globalisation.

The moves are paying off financially for the likes of Cosco Group and China Merchant Holdings International, but the overriding objective, Chinese officials say, is to control one of the world’s busiest trade loops. Ports on the route, running from Asia through the Suez Canal to Europe, would give priority to Chinese vessels.

The so-called Maritime Silk Road, the brainchild of Chinese President Xi Jinping, is part of One Belt, One Road, a $US4 trillion ($5.3 trillion) undertaking to connect China and Europe by land and sea. With the Trump administration looking askance at global trade deals, Mr Xi has become a champion of globalisation.

The Chinese leader met this week with President Donald Trump at his Florida resort Mar-a-Lago, a bilateral summit that Mr Trump had warned would entail a difficult discussion of the trade imbalance between the world’s two biggest economies.

China’s strategy “is taking shape with loads of money behind it,” said George Xiradakis, of Athens-based XRTC shipping consultancy, who serves as an adviser to China Development Bank. “As the West retrenches, the Chinese are out to dominate sea trade.”

In January, state-owned China Development Bank gave Cosco a $US26 billion credit facility to develop its shipping interests. Cosco, whose container line lost $US1.4bbn last year, is the world’s sixth-largest port operator and fourth-largest liner company.

Beijing will host a summit in mid-May on the Silk Road initiative with 20 leaders from Asia, Europe and Africa. Invitees include Russian President Vladimir Putin and British Prime Minister Theresa May.

“Private operators make investment plans for a maximum 12 months down the road,” said an executive at a Western operator.

“The Chinese can plan longer term and seal deals in places like Africa and Asia run by authoritarian regimes where we can’t go because of our shareholders and public opinion.”

Shipping lines have been adding more ports to position themselves ahead of an expected recovery in container freight rates, which for years have been below break-even levels.

A recent wave of consolidation cut the number of container operators from 20 to a dozen, and they have grouped into alliances for sharing vessels and port calls starting in April. The trend has port operators racing to attract dockings as bigger, but fewer, ships will serve the main routes.

“We had to learn to dance with giants,” said Zhang Wei, managing director of Cosco Shipping Ports. “The giants will create more pressure on our survival, but also bring better efficiency and more stable income if you can make them stay.”

One of Cosco’s competitors, APM Terminals, a unit of Danish conglomerate AP Moller Maersk A/S, has spent $US7.9bn since 2010 buying terminals. Mediterranean Shipping Co, the world’s second-largest container carrier, in January bought 54 per cent of the biggest container terminal in Long Beach, California from bankrupt Hanjin Shipping.

Cosco, China Merchant and China Overseas Port Holding have spent more than $US4bn since 2010 for stakes in 21 of the top 50 container ports, according to research by Theo Notteboom, a professor of port economics at universities in China and Belgium. That is on top of an estimated $US40bn China has pumped into ports along its coastline, he said.

Cosco invested in terminals in Seattle, the Italian port of Vado and Greece’s Piraeus. Last year it paid $US300m for a 51 per cent stake in Piraeus’s port operator and has agreed to payshell out $US300m for an additional 15 per cent stake. Cosco said Piraeus was one of its best performing units, with container volumes rising 14 per cent last year.

China Overseas, which has run operations at the Pakistani port of Gwadar since 2013, is investing $US1bn in projects, including transhipment terminals and floating gas facilities.